6 smart ways to tackle expensive debt in retirement

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There are a few simple strategies you can use to rid yourself of the stress and expense of high-interest debt during retirement.

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Retirement is a time to savor the fruits of your labor, but if you’re facing looming debt, it can cast a shadow on your golden years. And, if that debt comes with a high interest rate, the costs can compound quickly — especially if you haven’t budgeted to pay it off in full as part of your retirement plan.  

But debt doesn’t necessarily have to feel overwhelming simply because you’re retired or on a fixed income. While you may not be earning regular income from a full-time job, there are still ways to rid yourself of expensive debt during retirement, saving you time, money and lessening the stress during your later years.

That said, tackling expensive debt in retirement requires strategic planning and a thoughtful approach. To help you get started, we compiled a few smart ways you can better manage your expensive debt during your retirement years.

Learn more about how a home equity loan could help you pay off debt during retirement.

6 smart ways to tackle expensive debt in retirement

If you’re struggling to pay off high-interest debt during retirement, the following strategies may be worth considering:

Use a home equity loan to pay off debt

One effective strategy for managing expensive debt in retirement involves tapping into your home equity. Home equity is the difference between the current market value of your home and the outstanding mortgage balance. One common way to do that is through a home equity loan.

A home equity loan allows you to borrow a lump sum of money against the equity in your home, which you then repay over a fixed term with a fixed interest rate. This can be a sensible option if you have a specific debt with a high interest rate, such as credit card debt. 

By consolidating these high-interest debts into a lower-interest home equity loan, you can reduce your overall interest payments and simplify your monthly financial obligations. And, considering that home equity loans typically come with much lower interest rates compared to credit cards or other types of loan products, it can be a smart way to reduce the cost of your high-interest debt in retirement. 

Explore your best home equity loan options online today.

Harness the power of a home equity line of credit

Another way to tap into your home’s equity during retirement is with a home equity line of credit (HELOC). A HELOC is a flexible borrowing option that lets you access funds as needed, up to a predetermined credit limit. 

With a HELOC, you can draw funds, repay them and then use the available credit again, much like a credit card. This flexibility can be advantageous for managing variable expenses, such as medical bills or home repairs. However, it’s crucial to manage a HELOC responsibly to avoid the risk of accumulating additional debt — and since the rates on HELOCs are variable, it’s important to understand how rate changes could impact what you owe in the future.

Consider taking advantage of a reverse mortgage

A reverse mortgage is a financial tool available to homeowners aged 62 and older that allows them to convert a portion of their home equity into tax-free income. Unlike traditional mortgages, a reverse mortgage does not require monthly repayments. Instead, the loan is repaid when the homeowner sells the home, moves out or passes away. 

This can provide a steady stream of income in retirement, which can be used to pay off existing debts, cover living expenses or fund other financial needs. However, the reverse mortgage loan requirements and rules are unique, so it’s vital that you understand all of the risks and benefits before paying off your debt in retirement using this type of loan.

Downsize for debt relief

You may also want to consider the possibility of downsizing your home to free up cash and reduce expenses in retirement. Selling a larger home can provide a significant lump sum that can be used to pay off existing debts or fund your retirement lifestyle. And, moving to a smaller, more cost-effective residence can lower your monthly living expenses. This, in turn, can help to further stretch your retirement savings.

Explore part-time work in retirement

Exploring part-time work opportunities during retirement can be another excellent way to generate additional income to tackle debt. Whether it’s a consulting gig, freelance work or a part-time job in a field you enjoy, the extra income can make a significant impact on your ability to pay down debts.

Be mindful, though, of your overall well-being and choose work that aligns with your interests but won’t compromise the relaxation and enjoyment retirement is meant to bring.

Seek professional advice

Navigating the complexities of debt management during retirement can be challenging, and seeking the guidance of a financial advisor can, in turn, be a wise decision. An experienced advisor can help you create a personalized debt repayment plan, optimize your investment portfolio and ensure that your retirement funds are used efficiently.

The bottom line

Tackling expensive debt during retirement requires a combination of careful planning and strategic decision-making. Leveraging home equity through a home equity loan or line of credit, exploring a reverse mortgage, downsizing, exploring part-time work and seeking professional advice are just a few strategies that can contribute to a financially secure retirement. By adopting a proactive approach, you may be better prepared to enjoy your retirement years with peace of mind and financial stability.

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